Bonds
What are bonds Bonds are like a reversed loan - instead of you paying interests to the bank, the banks pays them off to you. These interests the bank has to give you are paid around midnight. Thus giving an excellent buffer to catch the taxes you have to pay. A bond has an issue price, which is the price you have to pay to buy them, and a nominal value which is the amount you will receive back in your bank account when the bond expires. Features of a bond Issuer The issuer of a bond is the entity which is borrowing the money. When you buy a bond you are actually borrowing money to the issuer who is willing to pay an interest to you as compensation. In Businessgame, all bonds are issued by the Businessgame Bank. Issue price The issue price is the price at which bonds are being sold. Note that the issue price is not always the same as the nominal value or face value of a bond. Which means that the you sometimes pay more or less than the actual value of the bond, of course, this has an impact on the interest rate you'll be given. Nominal value The nominal value or face value of a bond is the actual value of the bond. The nominal value is the value by which the interest is calculated. The nominal value is the amount of money you will receive when the bond expires. Interest rate The interest rate is the percentage of the value of the bond you will receive daily. It is based on the nominal value of the bond. So when the interest rate is 10% and the nominal value of the bond is €100, you will receive €10. Maturity The maturity is the life time of the bond. The bond will expire after the given amount of days at which point the issuer will return the nominal value of the bond to the bond holder. The bond will cease to exist and no more interests will be paid. Yield The yield is the effective return an investor makes on the bond. Basically this is the amount of money you will make per €100 invested (issue price) after the bond has expired. Bond values In Businessgame bonds will be issues at 2 nominal values. There is a cheap version of €10,000 and an expensive one of €250,000. Of course the more expensive bonds will have a higher yield. For simplicity bonds of the same price category and the same maturity will have the same yield. Types of bonds The Businessgame Bank issues a different number of bonds. Each type has it's own advantages and disadvantages and behave a little differently. At the moment the game contains the following types: Plain vanilla bonds These are simple bonds with the same issue price as the nominal value and a fixed interest rate. Zero coupon bonds These bonds don't pay any interests during their life time. However you will be able to buy these bonds at a discount. The actual nominal value of the bond will be far higher than the issue price you'll pay for it. Premium bonds (Above par) Premium bonds (also called above par) are bonds where the issue price is higher than the actual nominal value; which means you'll be paying a premium to buy the bond. Of course you will be compenstated for this premium by higher interest rates than a regular bond. Discount bonds (Below par) Discount bonds are bonds where the issue price is lower than the actual nominal value; which means you'll be getting a discount when you buy the bond. Of course the issuer will pay lower interest rates than a regular bond. Perpetual bonds Perpetual bonds are bonds with a fixed interest rate and no expiration date. They will last forever and thus pay interests ad infinitum. They are a good investment for investors who are looking for a sure fixed income during the entire round. Maturities Bonds will be available at the following maturity lenghts: * 5 days * 10 days * 20 days * 30 days * 60 days * Forever Yields The yield of a bond is dependant on the value of the bond and it's maturity length. Note: This is not applicable for the perpetual bonds. The yield of perpetual bonds can not be calculated. Since they last forever their yield is technically infinite. Effect on your ranking Due to practically, rankings will account for the nominal value, not the issue price, after you bought them. The nominal value of the bond gets counted towards your ranking immediately so buying bonds might cause jumps in your ranking short term. Limitations of bonds To avoid abuse at the end of the round, you can only take out the type of bonds of which the maturity is at least twice as large as the remaining round time. So at the end of the round, the catalog of available bonds will shrink.Category:Finance Category:Stubs